SA sees budget surplus over next 3 years
South Africa will record a budget surplus for the next three years due to higher than expected tax revenues and would invest more to boost infrastructure, the National Treasury said on Tuesday.
In its Medium Term Budget Policy Statement, the Treasury said robust economic growth over the past five years had provided for a more expansionary fiscal stance, creating room for more borrowing to fund capital projects.
Public spending would continue to rise by about 6.4 percent a year.
The Treasury said South Africa recorded a budget surplus of 0.6 percent of GDP in the 2006/07 financial year, and estimated a surplus of 0.5 percent for 2007/08, 0.7 percent in 2008/09 and 0.6 percent in 2009/10.
The Treasury said the South African Revenue Service (SARS) was expected to collect 9.5 billion rand more than what was budgeted for 2007/08 thanks to above-inflation wage increases and increasing employment.
But the rate of growth in tax revenues would likely moderate over the medium term as a result of higher business investment allowances and a slower rate of consumption growth.
DEALING WITH CYCLICAL FACTORS
The Treasury said it was introducing a structural budget system that would take into account the cyclical economic cycles and the fluctuations in government revenue.
"When economic conditions are good as they are now, we must invest and save in a manner that allows us to maintain public spending and societal welfare when economic conditions turn less favourable, as the inevitably will," the Treasury said.
"By running moderate budget surplus, the government has the fiscal space to increase borrowing to finance expenditure priorities when the cycle turns without placing an excessive financing burden on the economy," it said.
But Finance minister Trevor Manuel said the new system was not geared towards setting a target for a budget balance.
"We try to avoid the issue of fiscal rules. What we want is a wider discourse about economic outcomes and we don't want to draw lines in the sand. If you make a rule you may come out short," he said in response to a question on whether the treasury had a target for an ideal budget balance.
A share of the tax revenue will be saved to offset economic risk, when the tide of current global economic growth finally turns.
"By not spending the full value of buoyant tax revenues, government helps to limit current account and inflationary pressures, and takes some pressure off domestic interest rates, contributing to the sustainability of economic growth," the Treasury said.
The Treasury saw public sector borrowing requirement rising to 0.3 percent of GDP in 2007/08, 0.8 percent in 2008/09 and 1.1 percent in 2009/10 as state-owned enterprises such as power utility Eskom and freight company Transnet raise money from capital markets.
Eskom is faced with a challenge of increasing South Africa's electricity generating capacity while Transnet needs to upgrade port and rail infrastructure to take the burden off the road network.
